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Grayling's Brexit Bulletin - 13 April 2018

13th April 2018

The BREXIT Bulletin: Prospect of "no deal" still with us

Once upon a time "no deal is better than a bad deal" was the common refrain, at least in Westminster.

But since the rapid progress since December, the drafting of a Withdrawal Agreement (admittedly with bits still needed to be fulled in...), and a Transition Period, you might be mistaken for thinking the "no deal " scenario is dead and buried.

Not so.

Sure, the rhetoric coming out of London is much more conciliatory than in the bellicose post-Article 50 notification days. Moreover, the UK agreeing to pay up on leaving and accepting - perhaps grudgingly - most of the Withdrawal Agreement suggests it is actually very keen for a deal.

Yet we are not out of the woods yet.

Northern Ireland remains a thorny issue, and the EU is determined that this needs to be solved satisfactorily as part of the Withdrawal Agreement - so still this year - and not as part of the future relationship discussions further down the line.

Even if both sides find agreement on the remaining standout issues (the parts currently unshaded in the Agreement) it then has to run the gauntlet of the UK Parliament and the European Parliament, which will no doubt revel in its time in the limelight and not be afraid to grandstand.

So there are some snakes in the grass when it comes to approving the Withdrawal Agreement, but there are even bigger ones lying in wait when it comes to the future trade agreement - and there is no bigger snake than the Walloon Parliament in Belgium, which famously scuppered the EU-Canada trade deal first time round.

Want to know more about what a "no deal" means in practice? Check out Grayling's 2-page briefing here.

If you have any suggestions about the Brexit Bulletin or want to find out more about a specific aspect of Brexit, please do let us know. Please visit the Grayling Brussels website, follow us on Twitter @TheEULobby, and don't forget to check out our Brexit Papers.

Divisions in Labour continue to dominate UK headlinesAs the Parliamentary recess entered its second week, Brexit has assumed a lower profile in UK headlines, with the great geopolitical questions of Russia and Syria dominating the airwaves. Where Brexit has attracted focus, it has once again been on the internal machinations and divisions within the Labour Party. Only a matter of weeks after Jeremy Corbyn sacked Owen Smith from the front bench for openly supporting a second referendum, Labour’s Shadow International Trade Secretary, Barry Gardiner, was reported to have rubbished Labour’s ‘Six Tests’ for any Brexit deal at a think-tank event in Brussels. The Labour Leader has since faced criticism for backing Gardiner, who is considered an ally of the leader, rather than doling out the same fate that met Smith who challenged Corbyn for the leadership in 2016

There have also been rumoured splits within the UK’s Brexit negotiating team, namely between No. 10’s Brexit lead, Olly Robbins, and the Brexit Secretary, David Davis. While Robbins has been pushing for a high-level, ‘outline’ approach to the negotiations over trade and the future relationship between now and October (with details filled in at a later date), Davis favours nailing down the finer details of the Deal prior to Brexit day, reportedly fearing that Conservative MPs could reject any deal that left the way clear for a potential ‘sell-out’ further down the line.

Davis has also waded into the question of the Irish border this week at a Wall Street Journal conference, where he floated the possibility of granting some form of tax-free status to small businesses whose operations currently straddle the border. This offers a solution to those SMEs that would miss out on the UK’s proposed “trusted trader” status that the Government hopes will facilitate the flow of free trade on the Island of Ireland. Whether the proposals can be sold to the Irish Government and the EU is, of course, another matter, with a senior Fine Gael figure this week suggesting the proposal was “interesting” but unrealistic.

The Grayling ViewParliamentarians and journalists alike will be thankful for the reprieve in the focus on Brexit, but business as usual is shortly set to commence, with the first three days of the Withdrawal Bill’s Report Stage already scheduled for the next two weeks in the House of Lords. Focus on the intricacies of the negotiations makes for exciting reports, but it is important to remember that debates happening much closer to home also hold jeopardy for the Government and could yet upset Theresa May’s best laid plans.

The House of Lords is acutely conscious of undermining its own claims to legitimacy by being seen to thwart the will of the Commons and the public at large. However, there is almost certainly a majority who hold the belief that the Government’s (and the Commons’) mandate for delivering Brexit does not extend as far as the terms of what that final Brexit deal looks like. It would not be at all surprising to see further amendments to the Withdrawal Bill at Report Stage, especially on the question of where authority lies in the event that Parliament rejects the Government’s proposed Brexit deal.

The second ongoing constitutional row to watch concerns the status of the devolved Parliaments in Scotland and Wales, who argue returning powers should be passed directly to them. Both legislatures have published their own rival ‘continuity legislation’ - a bold move that effectively challenges the supremacy of Parliament. Should this constitutional row escalate, the UK Government could be forced to make a joint referral of the Scottish and Welsh Governments to the Supreme Court, marking the first time an Act of the Scottish Parliament has been challenged by a UK Attorney General.

The highlights from Brussels

Delimiting the field On 10 April the EU’s Chief Negotiator Michel Barnier gave a speech to the "Green 10" - a coalition of environmental NGOs - in which he provided further clarity on the EU’s position on the so called "Level Playing Field".

For Barnier, an ambitious future relationship must provide for fair competition between the UK and the EU-27 on the basis of minimum guarantees on state aid, taxation, social standards, and environmental protection. Barnier conceptualises the Level Playing Field as being enforced by a legally binding non-regression clause on the future relationship agreement. In essence, this would set minimum standards for both the UK and the EU at the pre-Brexit level; those enshrined in EU law as of 31 December 2020. Barnier freely admits that this would require a more comprehensive solution than those currently employed in CETA (the EU-Canada trade deal).

Barnier also states that the Level Playing Field requires the UK to live up to the international commitments to which it is currently a party in respect to its EU membership, in particular to the Paris Climate Agreement.

The Grayling ViewThe Level Playing Field is an issue on which the European Commission has been very clear that it is willing to go beyond the existing precedents in its commercial policy. Whilst the UK has stated that there is no intention to slash and burn EU regulatory standards post-Brexit, the possibility is a threat which continues to contribute to the unity of the EU-27.

For the EU, vague commitments to maintain comparably high standards are simply not sufficient. Indeed, the EU itself, as a supranational body of law, is a system designed to enforce trust between nation states to overcome mutual distrust, thereby establishing a Level Playing Field. Well, at least a playing field that is more level than it otherwise would be.

What is especially striking however is the suggestion that the Level Playing Field could be enforced via a binding non-regression clause, which to all intents and purposes would set in stone minimum harmonisation legislation in a number of areas. It is striking because the European Commission has insisted that Brexit cannot be allowed to impinge on the regulatory autonomy of the EU. A non-regression clause, if adhered to by the EU, would impinge on the EU’s autonomy by preventing it, as well as the UK, from lowering standards.

Given the current political climate on standards, there must be a risk for the EU that it is making a rod for its own back.

The highlights from Canada

Brexit: Win-Win for UK and CanadaIn an interview with the UK newspaper The Times, Justin Trudeau, Canadian Prime Minister, called for a strengthened free trade agreement between the UK and Canada after Brexit. He said this FTA should be based on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU, which allows the import and export of goods tariff-free.

Ahead of the Commonwealth heads of government meeting in the UK this month, Trudeau said that bilateral negotiations can start “the day after Brexit”, in March 2019 (hence during the Transition Period). He suggested that such an agreement could go further and have a greater impact than CETA but also noted that both Ireland and Canada could benefit from Brexit by encouraging people to relocate from the UK.

Trudeau’s remarks come after Bill Morneau, Canadian Finance Minister, had called last month for the UK and Canada to strive for a better deal than CETA. Where Liam Fox, UK International Trade Minister, has been hoping for reinforced Commonwealth trading ties, Morneau was less favourable towards a trading bloc based on the Commonwealth group.

The Grayling viewOverall, this is welcome news that places emphasis on the opening up of global trade for Britain, following the Indian High Commissioner’s doubts last week.

Trudeau suggested the process would be relatively easy - yet CETA took seven years to draft! Indeed, there is no evidence to suggest that a UK-Canada agreement would be any less complex.

Trudeau ambitiously plans to start negotiations “the day after Brexit”. Whilst under the current political agreement on transition, the UK would be within its rights to negotiate free trade agreements with third countries in March 2019, such an agreement can only be launched after Transition. Therefore, depending on the length of transition, this could pose a stumbling block.

Given that CETA does not cover areas such as financial services, a strengthened agreement between Canada and the UK could be a welcome prospect. But at what cost? How would such an agreement treat movement of people and regulatory standards? The process of securing an FTA may not be as easy as it seems and may not live up to Trudeau’s “win-win” scenario.

Dates for your diary

17 April 2018 - General Affairs Council (Art. 50)1 July 2018 - Austrian Presidency of the CouncilEnd of October 2018 - Negotiations expected to end1 January 2019 - Romanian Presidency of the Council29 March 2019 - UK expected to leave EU31 December 2020 - Expected end of transition

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